- First Majestic Silver produced 3.9 million ounces of silver equivalents in the second quarter.
- The company also announced higher grades and recovery rates, meaning that in all likelihood its costs came down.
- First Majestic's growth is in line with my assessment last July, although the company is growing slower as it postponed its Del Toro ramp up due to low metal prices.
- The stock is still pricey, but it is an under-performer among growing silver companies, and I think it can be accumulated on weakness.
First Majestic Silver (NYSE:AG) recently reported strong 2nd quarter production figures. Highlights include an 18% increase in silver equivalent production to 3.9 million ounces and a 12% increase in silver production to 3.1 million ounces. Total ore processed was essentially flat year over year although the company produced higher grade ore (212 gpt of silver vs. 201 gpt of silver in the 2nd quarter a year ago) and it increased its recovery rate to 68% from 62%.
This data reaffirms my July 10, 2013 investment thesis that the company offers strong growth and low production costs, and that while the shares are expensive given its current cash-flow generation, the premium is justified if you are bullish on silver. The company's management has a long track record of increasing production while maintaining low costs and keeping base metal exposure to a minimum. Regarding this last point, I should mention that the company announced that it would be hedging 30% of its lead production in April.
The stock has been underperforming the rest of the sector, especially its higher-growth, low-cost peers (e.g., Fortuna Silver (NYSE:FSM) and Endeavour Silver (NYSE:EXK)). This has likely been due to the fact that the stock had traded at a premium, which is now gone. It also has all of its properties in Mexico, which recently instituted a 7.5% mining royalty that likely kept some investors away. However I think this is a stock worth buying on weakness given the company's continued growth and its long history of generating shareholder returns.